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WASHINGTON -- The Bush administration is trying to play to China's global
ambitions as a tactic to persuade Beijing to allow its currency to rise more
against the U.S. dollar.
The U.S. is quietly dangling the prospect that it will help China secure more
power in the International Monetary Fund, the 184-nation body that rescues
cash-strapped countries, if Beijing stops keeping the yuan so weak against the
dollar -- a practice driving a protectionist backlash in Congress.
"If we're going to give China or any other country ... greater weight in the
IMF, then they need to take their responsibilities in that institution
seriously, and they need to play by the rules as they're laid out," said Timothy
Adams, Treasury undersecretary for international affairs.
The U.S. hasn't said overtly that China must relax its grip on the yuan to
gain more voting power in the IMF. But America's message has been clear:
"Membership has its rewards; it also has its responsibilities," Mr. Adams said.
Prodded by manufacturers and unions, lawmakers from both U.S. political
parties have accused China of cheating in international trade, because an
undervalued yuan makes Chinese goods cheaper for Americans.
To fend off congressional threats of protectionism, the White House and
Treasury have been using the few levers they have to cajole China into allowing
the yuan to rise. China has responded in small steps. A year ago -- on July 21,
2005 -- Beijing said it would raise the yuan's exchange value against the dollar
by 2.1% and allow it to fluctuate with market forces. Since then, however, the
yuan has climbed only an additional 1.5%.
The yuan "is by no means moving based on the market," Hiroshi Watanabe,
Japan's vice finance minister for international affairs, told reporters in Tokyo
Thursday. "More flexibility is desirable."
The IMF has been trying to get China -- and by extension South Korea and
some other Asian nations that track China's exchange rate -- to reduce their
reliance on weak-currency-driven exports. Although the IMF hasn't been as
aggressive as the U.S. would like, it has said that China's rising trade
surpluses, or the margins by which exports exceed imports, indicate "increased
undervaluation" of the yuan.
At the same time, the IMF is grappling with how to give these rising powers
their fair share of control of the institution itself. The IMF was created by
the industrialized Western countries after World War II, and voting power on its
board of directors continues to reflect, in large part, their past economic
strength. Asia accounted for about 22% of global economic output in 2003, about
a third higher than its share of IMF votes.
China's representative on the IMF board declined to comment on the prospect
of an increased role at the IMF. Beijing hasn't been pushing nearly as hard as
South Korea to get the IMF to revamp its system. That is in part because China
already has its own seat on the 24-member IMF executive board, the institution's
policy-making body, while South Korea is part of a group of 14 countries that
share a seat. "The Chinese have been very good about not asking for a quota
increase for the very reason that they know we'll ask for more movement on the
currency," said Mr. Adams.
IMF Managing Director Rodrigo de Rato is revisiting the issue of how much
each country should contribute to the lender -- its quota -- and, therefore, how
much weight it should have in decision making. He would like members to approve
a small, quick share increase for China, Mexico, Turkey and South Korea at the
IMF's annual meetings in Singapore in September.
"We are examining how a change in the structure of quotas would better
reflect important changes in the world economy that have taken place, especially
the increasing weight of emerging-market economies," IMF Deputy Managing
Director Takatoshi Kato said in a speech in Manila Thursday.The U.S. has
indicated general support for the idea, but is withholding full endorsement in
part to keep the pressure on Beijing.
The opposite tactic, giving China a bigger voice at the IMF first, might work
better, says Harvard Prof. Kenneth Rogoff, a former IMF chief economist. "One of
the reasons to increase Asian representation in the IMF is to make them feel
more enfranchised and more willing to cooperate," he said.
A major redistribution of voting shares to increase the power of Asia and
other emerging nations would likely mean diminished power for small European
nations such as Belgium and the Netherlands, among others. The U.S. Treasury
predicts that it could take a year or two to negotiate a new formula for
divvying up control of the IMF board. The last major quota increase took place
in 1999.
A change in IMF quotas likely would require congressional approval. The Bush
administration is quietly using that to prod China, implying that Beijing will
have a hard time persuading lawmakers to sign on to an IMF-quota increase unless
the yuan has climbed substantially, foreign banks have gained more access to
China, and China has taken steps to reduce dependence on exports to the
U.S.
